target costing

While we are performing our analysis on different aspects of the company, we look at the three main types of cost. When we remain devoted to improving our costs, and the faults related, we show our same devotion to our consumers. This is portrayed by the quality of products we put on the shelves. Prevention costs, appraisal costs and Failure costs are areas

The author was able to provide a detailed aspect of variable costing with clear emphasis on the importance of variable costing. According to the author, differentiating between fixed and variable costs is the first step in controlling costs. The article is helpful in understanding cost relationship and its correlation to cost absorption in manufacturing

Cost analysis: fixed versus variable costs direct versus indirect costs; traditional costing and activity based costing

Session 1 Date September-4 Topic Introduction, overview, group assignment, product costing systems (concepts and design) Process costing systems Managing and allocating support service costs Inventory decisions Strategic issues in investment decision Managing quality and time to create value Midterm Exam Cost management and strategy The nature of management control systems Understanding strategy Strategy, balanced score card, incentive systems Organizational design & responsibility accounting Case presentation Case presentation Case presentation Case written report is due at the beginning of session 13 Final exam Chapter 1 (H) Chapter 1 (A) Chapter 2 (A) Chapter 20 (H) Chapter 18 (H) Reading Chapter 2 (H)

Cost Planning for The Product Life Cycle: Target Costing, Theory of Constraints, And Strategic Pricing

Next, consider a manufacturer that keeps safety stock for a product it makes. In many commodity products, profit margins are low. Suppose profit margin is 10%. The chart above shows the impact of a 10 day supply disruption on profits. Since safety stock can cover for some of the supply disruption, the higher the safety stock the lower the profit loss. For instance, if safety stock is 8 days, only 2 days of revenue is lost and hence the profit loss is for 2 days of sales only. The corresponding profit loss varies from 2% to 4% depending on how high the fixed costs are. Figure 2 (above) shows that a manufacturer with 75% fixed costs (in some manufacturing industries such as semiconductors, fixed costs can be very high) can lose more than twice as much as a manufacturer with

The decision to implement a new or change a current product costing system requires a lot of research and pre-planning. In order to determine the most effective product costing system management must decide which costs should be included in the product costs, at what level will direct costs be tracked, how indirect costs will be structured, and when to capture the indirect costs. Once all the costs have been identified and organized into fixed, variable, or overhead categories, management must then decide which product costing system would provide the output information necessary for important business decisions.

Accounting. General Cost Classifications. Product Cost versus Period Cost. Cost Classifications on Financial Statements. Cost Classifications for Predicting Cost Behavior. Cost Classification for Assigning Costs to Cost Objectives. Cost Classification for Decision Making. Review Problems

Strategic cost management in the literature is discussed from many aspects. Many authors in their research have studied and paid attention to the various instruments used for strategic

In today’s business world, there is much debate about the future of standard costing and the determination of the system becoming obsolete. With some academicians making it clear that this method is inappropriate in a modern manufacturing environment, many others are still using this system. These systems are designed to properly allocate costs of direct labor, indirect labor, materials, overhead, and selling/ general/administrative accounts on a unit basis for the purpose of accurately costing products and the subsequent control of those costs in managing the production, marketing, purchasing, and administrative functions of the business. Even though these systems are still widely popular and used for many US manufacturing firms there is still much controversy surrounding these systems in deciding if the systems are the most effective or are useless? In fact, since the early 1980s standard cost systems (SCS) have been under attack as not providing the information needed for advanced manufacturers (Hansen and Mowen, 2013). The explanation of this claim is that standard costing does not meet the needs of business because of the introduction of advanced manufacturing technologies, shorter product life cycles, decreasing emphasis of labor cost in the total production costs, and intense global competition. However, with 74 percent of respondents verifying that they were using standard costing systems still and that it is the best method out there as of right now, a

Application of fixed costs can be misleading: Product costing comprising allocation of costs from activity centers to products and computing a products cost per unit. The major disadvantage of this method is that fixed costs are frequently large portion of the overhead costs being allocated for example, building and machinery, depreciation and supervisor salaries. Fixed costs are costs that doesn’t change in total but activity

Advances in the application of new cost techniques, is not always adequate for planning future cost for a company (Cokins et al, 2012). In some cases, organizations Cokins et al (2012) explains, the gap seems to widen between management accountants and the management staff and employees. The reason for these gaps can stem from various areas of operations. A company’s strategic shifts can either work effectively or ineffectively. Managers pursue many approaches to find the most effective route to successfully implementing a strategic plan for increasing a firm’s financial position. The pertinent information gain from historical and assumed future data allows managers to plan accordingly. The main purpose of this study is to evaluate the cost structures of a firm and determine the reason for expenses increasing, if certain situations occurs. Bloch et al (2013) describes four stages of strategic cost management systems as:

The costing systems aid companies in determining the cost of a product in relation to the revenue the product generates. The costing systems commonly used in businesses include activity-based costing and traditional costing. Traditional costing system assigns the manufacturing overhead based on the capacity of a cost driver. For example, the amount of direct working hours required to produce a particular item. Cost drivers are factors that cause cost to incur, like machine hours, direct material hours, and direct labor hours. Activity-based costing system allocates cost of manufacturing a product in accordance to the activities required to produce the particular item. It’s therefore essential for managers to understand the merits

A cost analysis can be conducted in order by companies in order to estimate their cost when making decisions (Douglas, 2012). Managers can various methods to analyze costs for decision making purposes these are total variable cost, average variable cost, marginal costs (Douglas, 2012). In addition the company can use profit maximization and marginal revenue to help make decisions (Douglas, 2012). This paper will analyze two different scenarios and use various methods to help them make the decisions at hand.

As alluded in the introduction, the role and effective use of costing techniques may vary depending on a certain number of contextual variables and objectives. This section explores these variables and thus provides a critical assessment of the roles and uses of the techniques.